Month: July 2014

Just when you thought things could not get any worse for Abe and his experimentation in monetary policy alchemy… it does. Between surging inflation and stagnant wage growth, real wages for the Japanese fell by their most since the collapse of Lehman. Even the break of a 23-month streak of base wage drops was dismissed by the government as “expected to be revised lower.” As Goldman warns, downside economic risks remain high, the J-curve is ‘delayed’, and with tumbling cabinet approval ratings and soaring personal disapproval ratings, Abe has a major problem on his hands…

 

Chart: Tom Orlik, Bloomberg ( @TomOrlik )

And as we noted previously, there is always Plan B…

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It appears it’s one of those nights. In a fit of confusion, Australia’s Central Bank head Glenn Stevens declared “investors are under-estimating the chance of an AUD decline” only to follow that ‘jawboning’ up with an explanation that he is trying “to avoid shifting language or jawboning.” But then he broke the cardinal rule of central-banking – he told the truth:

• *STEVENS: PEOPLE SHOULDN’T ASSUME HOUSE PRICES ALWAYS RISE

But.. but.. but… Ben Bernanke said… The AUD plunged over 50 pips on the news (but like any good central bank non-jawbone is suffering from a short half-life).

 

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Submitted by Michael Snyder of The Economic Collapse blog,

Do you wish that you had a better job?  If so, you are not alone.  In fact, there are millions upon millions of Americans that get up every day and go to a job that they wish that they could afford to quit.  Unfortunately, most Americans end up just desperately holding on to the jobs that they have because just about any job is valuable in this economic environment.  Over the past decade, the long-term trends that are destroying jobs in America have accelerated.  We have seen countless numbers of jobs shipped overseas, we have seen countless numbers of jobs replaced by technology, we have seen countless numbers of jobs taken by immigrants and we have seen countless numbers of jobs lost to the overall decline of the once great U.S. economy. 

Unfortunately, even though we can all see this happening, our “leaders” have failed to come up with any solutions.  And since there are so many of us that are desperate for jobs these days, employers know that they don’t have to pay as much.  The balance of supply and demand in the employment marketplace has radically shifted in their favor.  So less workers are getting health insurance these days, less workers are getting retirement plans and once you adjust for inflation our paychecks have been getting smaller for years.  Needless to say, all of this is absolutely eviscerating the middle class. 

The following are 17 facts that prove that the quality of jobs in America is going down the drain…

#1 A study conducted by the Center for College Affordability and Productivity is projecting that the number of college graduates that will be entering the workforce in the U.S. this decade will be nearly three times as high as the growth in the number of jobs that require at least a Bachelor’s degree.

#2 Only four of the twenty fastest growing occupations in America require a Bachelor’s degree or better.

#3 It is hard to believe, but in America today one out of every ten jobs is now filled by a temp agency.

#4 At this point, 53 percent of all wage earners in the United States make less than $30,000 a year.

#5 Approximately one out of every four part-time workers in America is living below the poverty line.

#6 One out of every three grocery store workers in the state of California is on some form of public assistance.

#7 Due to the decline in the quality of our jobs, income inequality in the United States has grown to frightening levels.  The following is an excerpt from a recent Politico editorial that was written by a very wealthy individual…

The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top 1 percent controlled about 8 percent of U.S. national income. The bottom 50 percent shared about 18 percent. Today the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent.

 

But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.

 

And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.

#8 In 2007, the average household in the top 5 percent had 16.5 times as much wealth as the average household overall.  But now the average household in the top 5 percent has 24 times as much wealth as the average household overall.

#9 In terms of median wealth per adult, the United States is now in just 19th place in the world.

#10 Our paychecks just keep getting smaller.  Median household income in the United States is about 7 percent lower than it was in the year 2000 after adjusting for inflation.

#11 During the last recession, the U.S. economy lost millions of middle class jobs.  But during this “recovery”, most of the jobs that have been “created” have been low paying jobs.  The following is from the New York Times…

During the recession, employment declined across the board, but 60 percent of the net job losses occurred in middle-income occupations with median hourly wages of $13.84 to $21.13. In contrast, these occupations have accounted for less than a quarter of the net job gains in the recovery, while low-wage occupations with median hourly wages of $7.69 to $13.83 have accounted for more than half of these gains.

#12 Due to a lack of decent jobs, half of all college graduates are still relying on their parents financially when they are two years out of school.

#13 According to one survey, 76 percent of all Americans are living paycheck to paycheck.

#14 Back in the 1980s, over 20 percent of the jobs in the U.S. were manufacturing jobs.  Today, only about 9 percent of the jobs in the U.S. are manufacturing jobs.

#15 One recent study discovered that all job growth in America since the year 2000 has gone to immigrants.

#16 Another recent study found that 47 percent of unemployed Americans have “completely given up” looking for a job.

#17 The plight of unemployed workers is likely going to continue to get even worse as technology replaces more of our low paying jobs.  For example, McDonald’s plans to experiment by replacing thousands of workers in Europe with touch screen terminals.  Will we soon see the same thing in America?

Almost all of us know someone that is working a low quality job.

Perhaps you find yourself stuck in such a situation.

And when you are slaving away day after day, week after week for next to nothing, it can really suck the life right out of you.

Just consider what one restaurant cook named Ruben goes through on a daily basis…

Ruben has worked as a cook at the Golden Corral restaurant chain for more than five years, and still only earns $8 per hour.

 

He has been living with his mother because he can’t afford a place on his own. But now she is about to move into an assisted living facility so he has no idea where he will go.

 

His job is in Maryland, so he takes the bus from D.C. every day. The last train home leaves at 11:24 p.m., so on nights when he works later than 11:30 p.m. he walks two hours home because he can’t afford a cab.

 

He says he’s scared to ask for a raise because he’s worried that they will let him go and find someone else willing to take the low wage.

Other Americans have found themselves dumped out of the middle class in recent years and forced to take just about anything that they can find.  A recent Huffington Post piece documented the plight of a formerly middle class couple named David and Barbara Ludwig…

In August 2008, factory workers David and Barbara Ludwig treated themselves to new cars—David a Dodge pickup, Barbara a sporty Mazda 3. With David making $22 an hour and Barbara $19, they could easily afford the payments.

 

A month later, Baldwin Hardware, a unit of Stanley Black & Decker, announced layoffs at the Reading plant where they both worked. David was unemployed for 20 months before finding a janitor job that paid $10 an hour, less than half his previous wage. Barbara hung on, but she, too, lost her shipping-dock job of 26 years as Black & Decker shifted production to Mexico. Now she cleans houses for $10 an hour while looking for something permanent.

 

They still have the cars. The other trappings of their middle-class lifestyle? In the rear-view mirror.

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You know it’s bad when… Property developers in two of China’s weakest housing markets are offering to buy back homes in the future above the purchase price in a desperate effort to boost sales as demand slumps. As one analyst understatedly notes, “obviously they’re relatively cash-thirsty,” but are under massive pressure not to reduce prices for fear of the signal it would send (that losses were possible). This ‘fear’ is echoed loudly by the CEO of Komatsu (the world’s second biggest maker of building and mining equipment) who saw said sales in China are falling more steeply than anticipated (20% below expectations) and warned “the impact of China is big.”

 

As Bloomberg reports,

China’s home sales slumped 10.2 percent in the first five months of this year from the same period a year earlier amid tight credit and an economic slowdown, reversing last year’s 27 percent jump.

 

The average new-home price in 100 cities tracked by SouFun Holdings Ltd. fell 0.5 percent in June from the previous month, accelerating from the 0.3 percent decline in May that ended 23 consecutive months of gains.

But the bursting of the bubble has led developers to desperate actions…

In Hangzhou, where home prices fell the most in May among 70 Chinese cities watched by the government, Shanheng Real Estate Group is giving homebuyers an option to sell back their apartments in five years for 40 percent above the purchase price.

 

In Wenzhou, DoThink Group is offering to repurchase homes at three of its projects for 120 percent of the purchase price after three years.

 

The offers are the latest strategy by developers across China, including reducing prices, delaying project launches and offering incentives to potential buyers, as they seek to maintain sales targets.

It appears to not be working…

Prices of new homes fell in May from April in half the 70 cities tracked by the government, the largest proportion since May 2012, according to government data. A more persistent and sharper downturn in the property sector is the biggest risk for China’s economy in the next couple of years, according to UBS AG.

 

“Obviously they’re relatively cash-thirsty,” said Dai Fang, a Shanghai-based analyst at Zheshang Securities Co.

And that is borne out by the derivative players of this collapse – Komatsu’s China sales in the two months were about 20 percent lower on the previous year…

Komatsu, the world’s second biggest maker of building and mining equipment, said sales in China are falling more steeply than anticipated, joining larger peer Caterpillar in flagging fraying Asian demand.

 

Komatsu’s sales in China, where economic growth is slowing, dropped dramatically in April and May and it will probably miss its annual target for the nation, Chief Executive Officer Tetsuji Ohashi said in an interview, citing delays to the start of some construction projects.

 

…

 

As a seller of equipment to both mining and construction companies, Komatsu is particularly vulnerable to fading growth in China, the world’s second-biggest economy and its biggest buyer of raw materials.

 

“Since the impact of China is big, we will closely monitor the situation,” Ohashi, 60, said at the company’s Tokyo headquarters last week.

*  *  *

But, but, but the PMIs are at multi-month highs so it all must be great right (oh aside from the lowest employment in 8 months)

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Submitted by David Stockman of Contra Corner blog,

Janet Yellen is a chatterbox of numbers, but most of them are “noise”.  And that’s her term.

Yet here is a profoundly important set of numbers that you haven’t heard boo about from Yellen and her mad money printers. To wit, during the “difficult” economic times since the financial crisis began gathering force in Q1 2008, the S&P 500 companies have distributed $3.8 trillion in stock buybacks and dividends out of just $4 trillion in cumulative net income. That’s right, 95 cents of every dollar they earned—including the huge gains from restructurings, downsizings and job terminations—was flushed right back into the Wall Street casino.

 

Self-evidently, the corporate form of business organization is designed such that some considerable portion of net earnings should be returned to their owners each year. But a 95% rate of distribution is a giant aberration. Were this outcome to occur on the undisturbed free market, for example, it would signal an economy that is dead in the water and that participating companies face a dearth of opportunities to reinvest profits in future growth.

Needless to say, that is the opposite of the “growth” and “escape velocity” story that currently excites stock market punters, and is wildly inconsistent with present capitalization rates in the stock market. That is, in a world of permanent zero growth and nearly 100% earnings distribution, the S&P 500′s current 19X PE on reported earnings would be wildly too high. The more appropriate PE would be in high single digits.

So the $3.8 trillion of dividends and buybacks since Q1 2008 reflects not the natural economics of the market at work, but the artificial regime of monetary central planning and the tax-advantaged treatment of corporate debt. Corporations are eating their seed corn because boards and CEO’s function in a Fed-created financial casino where they are massively incentivized to feed the fast money beast with ever larger share buyback programs in order to shrink the float and goose per share earnings. Doing so generates plump stock option gains, and failure to do so will bring on the black plague of shareholder “activists” agitating for big stock buybacks with borrowed money, and a new CEO and board, too.

Moreover, this pattern is owing to the fact that the Greenspan/Bernanke/Yellen “put” under the stock indices has destroyed two-way markets and the natural short interest that arises in any honest securities market. Accordingly, “downside insurance” against a decline in the broad market has become dirt cheap—as currently reflected in rock bottom VIX levels—-and has therefore enabled Wall Street gamblers to chase momentum plays at will. Stated differently, the momentum chasing hedge funds which drive the corporate buyback mania would not be nearly as profitable—-or massively sized—- if the Fed were not effectively subsidizing their downside hedges.

By now this syndrome has become so completely entrenched that the big cap corporate universe functions as an integral component of the Fed’s serial bubble finance cycle. As shown below, the pattern is wildly pro-cyclical, meaning that corporate cash increasingly fuels the bubble as stock prices reach their peak. Just prior to the financial crisis in Q1 2008, for example, share buybacks and dividends among the S&P 500 companies amounted to 130% of net income—-a distribution rate which plunged to just 65% during the dark days of Q1 2009.

But now we are off the races once again. The distribution rate reached 88% in CY 2013 and came in at nearly 110% in Q1 2014. In short, as financial markets reach their Fed induced bubble peaks, companies spend all they earn and all they can borrow chasing their stock prices ever higher. Indeed, during the most recent quarters, share repurchase programs have been the marginal bid which has propelled the stock indices to their current nosebleed heights.

Corporate stock buybacks thus function as a bubble cycle accelerator, meaning that they are making each new Fed reflation cycle more extreme and unstable. Prior to Greenspan’s irrational exuberance moment in December 1996 share buybacks amounted to about 1% of the S&P 500′s aggregate market cap. By the 2007 peak, they exceeded 5% and are heading in that direction once again—this time accompanied by a rising rate of regular dividend payouts, as well (not shown).

It does not take much analysis to see that this kind of financial engineering results in the inflation of existing financial assets, not the creation of new productive capacity. The graph below on net investment in fixed business assets is the smoking gun. The annual nominal level of net investment has not increased since 1997, meaning that after about 2% average annual inflation—real investment in new capacity in the US economy has shrunk by nearly 30% in the 16 years since the first Greenspan bubble began its final ascent. Stated differently, as the Fed’s money printing has ballooned and amplified the financial bubble cycles, the trend in real capacity growth has steadily worsened.

Needless to say, no Fed minutes ever even hint at the corporate seed corn that is being consumed or the perverse behavior in the C suites that has been induced by monetary central planning. Instead, its all about the “noise” emanating from the high frequency in-coming data.

Also unremarked is the fact that the share buyback mania leaves competitively challenged businesses in a precarious position and unable to weather downturns in the general business cycle or in their own sector.

Radio Shack is a prime example. It is now tottering on the edge of bankruptcy, and there is no doubt whatsoever that this is owing to a giant strategic error by its management and board. To wit, during the past 13 years it repurchased $3 billion of stock on the back of only $2.1 billion in cumulative net income. Indeed, in seven of those years it flushed back into the market more than 100% of its earnings—including $400 million of buybacks in 2010 on only $200 million of net income.

Today it is in a liquidity crisis, with barely $60 million of available cash. The article here fills in the grisly details about how this case of corporate hara-kiri unfolded. But the essential point is that it is not a unique case—just a leading edge illustration of the manner in which the Fed’s destruction of honest financial markets is impairing and gutting the nation’s business economy.

For followers of Austrian economics, it is understood that stock market bubbles are fueled by the Federal Reserve’s monetary pumping; which goes hand-in-glove with artificially low interest rates engendered by the Federal Reserve. Consequently, misleading interest rate and price signals can cause businessmen to make costly errors in judgment.

 

Since stock buybacks, misguidedly, are considered investments in one’s own business, are we not witnessing a massive clustering of errors with innumerable executive management teams authorizing malinvestment on a grand scale?

 

Instead of businessmen misreading market signals and malinvesting in capital and producers goods, many are malinvesting in shares of their own companies via stock buybacks. Like RadioShack, over time, will other companies strip-mine equity until their balance sheets become depleted? Once the current Federal Reserve induced bubbles implode, I’m confident RadioShack will not stand alone as to having gone bonkers, and broke, with buybacks.

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“Clinton Inc. is going to be the most formidable fundraising operation for the Democrats in the history of the country. Period. Exclamation point,” is how on Republican lobbyist describes the Bill-and-Hillary show and as WSJ reports, in total, the Clintons raised between $2 billion and $3 billion from all sources, including individual donors, corporate contributors and foreign governments. They have raised more than $1 billion from U.S. companies and industry donors during two decades on the national stage through campaigns, paid speeches and a network of organizations advancing their political and policy goals. Financial Services firms have been one of the single largest sources of money for the Clintons since the 1992 presidential campaign; and the couple’s No. 1 Wall Street contributor, giving nearly $5 million – Goldman Sachs.

 

 

As WSJ reports,

Bill and Hillary Clinton helped raise more than $1 billion from U.S. companies and industry donors during two decades on the national stage through campaigns, paid speeches and a network of organizations advancing their political and policy goals, The Wall Street Journal found.

 

Those deep ties potentially give Mrs. Clinton a financial advantage in the 2016 presidential election, if she runs, and could bring industry donors back to the Democratic Party for the first time since Mr. Clinton left the White House.

 

…

 

In total, the Clintons raised between $2 billion and $3 billion from all sources, including individual donors, corporate contributors and foreign governments, the Journal found. Between $1.3 billion and $2 billion came from industry sources.

 

…

 

The donated funds were split among the Clintons’ political operations, which raised $1.2 billion; their nonprofit foundation, which collected between $750 million and $1.7 billion; and speaking fees, which totaled about $100 million.

 

Not counting about $250 million the Clinton foundation has received from foreign donors, at least 75% of the money arrived in large donations from industry sources, a category defined by federal regulators and the Center for Responsive Politics.

 

…

 

“She has the credibility among Wall Street donors that could make it likely that Wall Street moves back into the Democratic fold,” said Sam Geduldig, a Republican lobbyist and fundraiser who represents Wall Street firms.

But do not worry – she is all about Main Street…

“If we are going to take on the mortgage debt of storied Wall Street giants,” she wrote, “we ought to extend the same help to struggling, middle-class families.”

Nothing changes…

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Submitted by James E. Miller of Mises Canada,

In America, and to a certain extent in Canada, rich businessmen are seen as savvy at their craft. After building an empire of wealth, it’s hard to challenge a successful person’s view of market economies. Business owners have to make payroll and navigate through government regulations. They have firsthand experience with the ins and outs of making sure consumers are satisfied. Driven by profit, they have little need for onerous tax collectors and do-goody bureaucrats standing in the way. Therefore, when an affluent businessman speaks, his word is typically taken as the unvarnished truth.

Things are not always that straightforward however. Not every capitalist prefers capitalism. Not every entrepreneur wants a free market. Not every Ayn Rand-like figurehead wants the government to adhere to strict and limited principles.

That’s exactly the case in a recent Politico Magazine article penned by Seattle investor Nick Hanauer. Titled “The Pitchforks are Coming…For Us Plutocrats,” the piece is written exclusively to the “.01%ers” who aren’t too busy from their day job to read the webzine version of a political gossip hub. What I mean to imply is that the article isn’t written for men and women who have their hands full putting billions of dollars to work in the economy. It’s written as a self-assurance tract for progressives who want to justify their “eat the rich” hankerings.

Hanauer starts out by hammering on the favorite trope of all leftists: inequality. He points out that a few decades ago “the top 1 percent controlled about 8 percent of U.S. national income” while the “bottom 50 percent shared about 18 percent.” Now in 2014 he claims, “the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent.” With this kind of divergence in wealth ownership, it’s just a matter of time before the people on the bottom rise up and reclaim what’s theirs. Hanauer writes that it’s impossible for society to “sustain this kind of rising inequality.” Before long, “the pitchforks are going to come for” him and his fellow super rich.

Now there is certainly a case to make that much of the economic inequality we have is unjustified. When governments dictate large portions of the economy, much as they do now, it has the effect of cementing the politically-connected on top. Small businesses and entrepreneurs have a more difficult time breaking into the marketplace when big players can keep them out via state mandates. The big banks, auto companies, large department stores, and software companies with loads of patents all take advantage of the government’s legal use of force to suppress competition. Their profits go up as a function of not necessarily satisfying consumers, but by not having to innovate as much.

Hanauer addresses none of this. He goes into the great need for the wealthy to start working with the government to chisel down the difference between the haves and have-nots. One recommendation he makes is for the moneyed to adopt the approach “Franklin D. Roosevelt did during the Great Depression” in order to help the middle and lower class. The idea that FDR was a boon to the poor is, of course, fiction. Roosevelt’s capricious New Deal regulations did nothing to cure the Depression; rather they elongated the downturn for over a century. Not only that, but the fascist cartelization of the economy through the National Industrial Recovery Act restricted many small businesses from even getting off the ground. There was also the blatantly racist housing policies that purposefully created inner-city ghettos by diverting tax subsidies away from urban centers.

In true ignorant fashion, Hanauer addresses none of the unintended consequences of government economic regulation and goes right for a direct solution: forcefully raising wages. He isn’t alone in this crusade. Large companies like Wal-Mart and McDonald’s have already embraced raising the minimum wage for putatively humanitarian reasons. Hanauer is just going off of their lead, and advocating for the Henry Ford approach to selling cars. The myth goes that Ford paid his employees an exorbitant, unprecedented wage – $5 a day back in 1914 – so that they, too, could afford the cars coming off the assembly line. This wage policy decimated Ford’s competition. He could afford to pay wages his competitors could not. This boost in take-home pay attracted better talent, which in turn lead to more production, and thus more profit.

The business approach was not meant to last however. When the Depression set in, Ford attempted to pay his employees at least $7 an hour. Instead of increased orders, the number of cars purchased fell. Employees ended up accepting lower wages and fewer work hours. Ford blamed company owners who only emphasized “profit motive” over wages. His reasoning was nonsense; if simply paying your employees more ensured higher employment and purchasing power, his original solution would have worked. Instead, the opposite occurred. Once again, one of America’s premier capitalists had the rules of economics completely backwards.

As Henry Hazlitt wrote in Economics in One Lesson, the logic behind the “enough to buy back the product” practice is completely flawed. The promoters of the purchasing-power theory, such as Mr. Hanauer, can’t expect “the makers of cheap dresses should get enough to buy back cheap dresses and the makers of mink coats enough to buy back mink coats.” In modern terms, it can’t be enough for the baristas at Starbucks to make enough to buy a $2 cup of coffee. They have to want something more. The only way Ford’s train of thought works is for everyone to work in industries that produce expensive goods.

In a clever move of obfuscation, Hanauer cites the growth of small business payroll in Seattle and San Francisco – two progressive paradises with the highest minimum wages in the country – to back his claim that higher government-mandated wages boost job creation. What he either forgets or purposefully hides is the effect of large businesses like Microsoft, Amazon.com, Wells Fargo, Google, and Twitter that are all headquartered in both cities. These businesses aren’t paying their employees a wage slightly above the minimum threshold. They’re doling out big salaries because of their ability to produce cutting-edge products and please consumers. The rise in small businesses around these industry giants is a result of the latter’s success – not the other way around.

If Hanauer really wants to test out his theory, I propose this to him: shed your billions of dollars and give the money directly to your employees. Drain your bank accounts and give the proceeds to the spend-happy middle class. If consumer demand truly grows the economy, then the profits will come roaring back. There will be no time gap between having to adjust capital investment to make sure goods reach store shelves. There will be no inability to purchase raw materials or pay employees while waiting for the finished product to hit the market.

As any basic economics student will tell you, that’s all patent nonsense. There is not getting around the fact that if you raise the price of labor, you will get less of it. Demand curves always slope downward. The minimum wage is always a creator of unemployment, no matter how many entrepreneurs or business owners say otherwise. Hanauer is right that economic inequality can create resentment. But he doesn’t see the real culprit: a government that insists in meddling in the marketplace. His solutions don’t fix the problem; only exacerbate it.

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“Wasn’t me…”

 

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While the Bank of England’s chief economist, Andrew Haldane, admitted that reviving investors’ appetite for risk was one of the forgotten goals of central banks, he notes there are concerns that risk is not being “removed” but changing shape and migrating to more liquid markets but that should not be a problem as “monetary policy can on occasions have a role to play in ensuring against these financial stability risks…” i.e. the market put. His biggest concern is the aggregation of derivatives clearing which could be a “problem from hell” but he notes the future will not be the same as the past as “volatility in financial-market asset prices will be somewhat greater,” and that interest rates will not ‘normalize’ to the levels of the past.

 

Some key excerpts from Andy Haldane’s speech today at Camp Alphaville,

We blew the bubbles…

“That’s why we did it. Lower rates and QE were an exercise in, among other things, trying to stimulate risk taking.”

 

The economic cost of inaction would have been considerable, he argued.

But, as WSJ reports, he appears to be concerned…

Critics say these tools may be ineffective, particularly if risky activity migrates into shadowy parts of the financial system beyond regulators’ reach.

 

Mr. Haldane acknowledged this was a possibility and said central banks must be prepared to use higher interest rates as part of their defenses.

The future won’t look like the past…

“The level of rates to which we are returning won’t be the numbers we’ve seen in the past”

As “risk” is rising…

“What we’re seeing in financial markets “isn’t risk being somehow removed or obliterated, we’re seeing risk change shape”

 

Risk is migrating off the balance sheets of banks and onto the balance sheets of non-banks in the form of market liquidity risk, Haldane says

 

“We’re now moving to a world where more of that risk “shows up on the mark-to-market balance sheets of asset managers and other funds,” he says

And volatility will pick up…

“That will mean on average that volatility in financial-market asset prices will be somewhat greater than in the past”

ut Central Banks can contain it…

“Monetary policy can on occasions have a role to play in ensuring against these financial stability risks, not as a first line of defense”

 

“There are other things that can and would be done as a first line of defense if we thought financial markets were detaching themselves too materially from fundamentals”

But there are other problems…

Excess agglomeration of CCPs [derivative clearing houses] “would cause the too-big-to-fail problem from hell”

*  *  *

Quite a different level of honesty than the bullshit Yellen spewed this morning of the US utopia of goldilocks growth and inflation forecasts.

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